Getting more oil to market in Canada requires more pipelines, NEB says

Natural Resources Minister Amarjeet Sohi listens to a question on a translation device as he speaks about the government's plan for the Trans Mountain Expansion Project during a news conference in Ottawa, Wednesday October 3, 2018. The National Energy Board says Canada's existing export pipelines are running at maximum efficiency and the only way to realistically get more oil to market on pipelines is to build more of them. THE CANADIAN PRESS/Adrian Wyld

OTTAWA — The National Energy Board says Canada's existing export pipelines are running at maximum efficiency and the only way to realistically get more oil to market through pipelines is to build more of them.

The board responded Friday to questions posed last fall by Natural Resources Minister Amarjeet Sohi, who wanted to know if there was any way to improve the efficiency of pipelines while Canada struggles to expand existing lines or get new ones built.

"In a nutshell, pipelines are full," said Jean-Denis Charlebois, the chief economist for the National Energy Board.

In a statement Friday, Sohi said the report confirms that Canada needs to build new pipelines.

The report says the amount of oil Canada is producing has increased while the capacity of pipelines to carry it has not. There are five pipeline projects, the report notes, that have been proposed and then cancelled or delayed in recent years. That includes the Trans Mountain pipeline expansion, which is in limbo pending a new round of reviews after a Federal Court of Appeal ripped up cabinet approval for it last year.

The NEB recently recommended cabinet proceed with the Trans Mountain expansion after completing a new review of the impact it will have on marine life. A new round of Indigenous consultations is underway and could be completed this spring.

The others are the Energy East pipeline from Alberta to the east coast (which Trans Canada abandoned), the Northern Gateway pipeline between Alberta and northern British Columbia (which the Liberals rejected in 2016), and the Keystone XL pipeline and the Enbridge Line 3 replacement (both of which face uncertainty due to regulatory challenges in the United States).

Altogether, those five projects could have added 3.4 million barrels of oil per day to Canada's shipments. According to the NEB, the capacity in pipelines out of western Canada was just under four million barrels a day as of last September.

The report says moving more oil by rail is also not a "perfect substitute" because doing so is more expensive and complex.

It also tells Sohi that while there is room to streamline the system used by oil producers to get access to pipeline space, doing so would only reallocate existing capacity, not create more.

The improvements largely surround how the pipelines verify the ability of producers to supply the amounts of oil they want to ship in pipelines. The way the system works now, sometimes companies overestimate how much they can send, expecting that when the limited space is allocated on a percentage basis they will end up getting what they actually need.

Sohi's request to the board came last fall as Canadian oil prices plunged thanks to temporary refinery closures in the Midwest, creating a price differential between Canadian oil and U.S. oil of $50 per barrel.

That price gap has since closed to less than $10 a barrel after refineries came back online and the Alberta government imposed a mandatory cut in production.

Charlebois said the report does say the system would benefit from better transparency of market data, to help shippers understand the pipeline operations.

Sohi Friday asked his officials to establish a team with Alberta and Saskatchewan to work on the availability of data, as well as make the suggested to improvements to how producers apply for pipeline space.

He is also working with Transport Minister Marc Garneau on improving rail access for smaller oil producers.